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Chapter 8

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Management (MGT)
Chris Bovaird

Organizing the Business Enterprise What is an Organizational Structure What do we mean by the term organizational structure? Organizational Structure: the specification of the jobs to be done within a business and how these jobs relate to one another  All businesses have common structural and operating components, each of which has a specific purpose o Each component must fulfill its own purpose while simultaneously fitting in with the others o How these components look and fit together caries from company to company  Every institution – be it a for-profit company, or a not-for-profit organization like U of T- must develop the most appropriate structure for its own unique situation The Building Blocks of Organizational Structure The first step in developing the structure of any business, large or small, is twofold: 1. Specialization: determining who will do what 2. Departmentalization: determining how people performing certain tasks can be grouped together These two tasks are the building blocks of all business organization Specialization Job Specialization: the process of identifying the specific jobs that need to be done and designating the people who will do them In a sense, all organizations have only one major “job”  For example, making a profit by manufacturing and selling men’s and boy’s shirts o But this job is broken into smaller components  Broken down into sets of tasks to be completed by a series of individuals or machines o Each component is assigned to an individual  One person, for example, cuts material for the shirt body, another cuts material for the sleeves and a third cuts material for the collar. Then the materials are shipped to a room where a person assembles it. Lastly, someone sews on the buttons Specialization and Growth In a very small organization, the owner may perform every job. As the firm grows, so does the need to specialize jobs so that others can perform them Jon specialization is a natural part of organizational growth  It also has certain advantages: o Individuals can perform more efficiently o The jobs are easier to learn o It is easier to replace people who leave the organization  It also has some disadvantages if job specialization is carried to far o Jobs become too narrowly defined o People get bored o Derive less satisfaction from their jobs 1 o Often lose sight of how their contributions fit into the overall organization Departmentalization Departmentalization: the process of grouping jobs into logical units There are many benefits to departmentalized companies:  Division of activities  Control and coordination are narrowed and made easier  Top managers can see more easily how various units are performing Departmentalization allows firms to treat a department as a profit centre Profit Centre: a separate company unit responsible for its own costs and profits  Thus by assessing profits from sales in a particular area – for example, men’s clothing – Sears can decide whether to expand or curtail promotions in that area Managers do not group jobs randomly  They group them logically according to some common thread or purpose  In general, departmentalization may occur along functional, customer, product, geographic, or process lines (or any combination of these) Establishing the Decision-Making Hierarchy After jobs have been appropriately specialized and grouped into manageable departments, the next step in organizing is to establish the decision-making hierarchy  That is, managers must explicitly define reporting relationships among positions so that everyone will know who has responsibility for various decisions and operations o The goal is to figure out how to structure and stabilize the organizational framework so that everyone works together to achieve common goals  A major questions that must be answered about any organization is, who makes which decisions? The development of this hierarchy generally results from a three-step process: 1. Assigning tasks: determining who can make decisions and specifying how they should be made 2. Performing tasks: implementing decisions that have been made 3. Distributing authority: determining whether the organization is to be centralized or decentralized Assigning Tasks The questions of who is supposed to do what and who is entitled to do what in an organization is complex  An any company with more than one person, individuals must work out agreements about responsibilities and authority Responsibility: The duty to perform an assigned task Authority: The power to make the decisions necessary to complete a task Performing Tasks 2 Trouble occurs when appropriate levels of responsibility and authority are not clearly spelled out in the working relationships between managers and subordinates  The issues become delegation and accountability Delegation: assignment of a task, a responsibility, or authority by a manager to a subordinate Accountability: Liability of subordinates for accomplishing tasks assigned by managers  If the subordinate does not perform the assigned task properly and promptly, he or she may be reprimanded or punished, possibly even dismissed Fear of Delegating Unfortunately, many managers have trouble delegating tasks to others.  When this happens, subordinates may not be able to complete a task because their manager has not delegated sufficient authority to them o These employees face a dilemma:  They cannot do what the boss demands, but that boss will probably still hold them accountable  Effective managers surround themselves with a team of strong subordinates, and then delegate sufficient authority to those subordinates to get the job done There are four things to keep in mind when delegating: 1. Decide on the nature of the work to be done 2. Match the job with the skills of subordinates 3. Make sure the person chosen understands the objectives he or she is supposed to achieve 4. Make sure subordinates have the time and training necessary to do the task Experts pinpoint certain indicators that managers (especially in small business) are having trouble delegating efficiently:  The feeling that employees can never do anything as well as they can  The fear that something will go wrong if someone else takes over a job  The lack of time for long-range planning because they are bogged down in day-to-day operations  The sense of being in the dark about industry trends and competitive products because of the time to day-to- day planning To overcome these tendencies, small business owners must admit that they can never go back to running all aspects of the business and that they can, in fact prosper – with the help of their employees – if they learn to let go There are several reasons managers in big companies don’t delegate as much or as well:  The fear that subordinates don`t really know how to do the job  The fear that a subordinate might “show the manager up” in front of others by doing a superb job  The desire to keep as much control as possible over how things are done  A simple lack of ability as to how to effectively delegate others The remedies in this instant are a bit different: 1. Mangers should recognize that they cannot do everything themselves 2. IF subordinates cannot dot a job they should be trained so that they can assume more responsibility in the future 3. Managers should recognize that if a subordinate performs well it reflects favourably on that employee’s manager 3 4. A manager who simply does not know how to delegate might need specialized training in how to divide up and assign tasks to others Distributing Authority Most businesses must also make decisions about general patterns of authority throughout the company. This pattern may be largely centralized or decentralized (or, usually, in between) Centralized Organizations Centralized Organization: top managers retain more decision-making rights for themselves  Top management must approve most lover-level decisions before they can be implemented o McDonald’s practices centralization as a way to maintain standardization  All restaurants must follow precise steps in buying products and making and packaging burgers  Most marketing is handled at a corporate level, and a regional managers must approve any local advertising Decentralized Organizations As a company gets larger; more decisions must be made, and there is usually a move to a more decentralized pattern Decentralized Organization: lower and middle-level managers are allowed to make significant decisions  The purpose of decentralization is to make a company more responsive to its environment by breaking the company into more manageable units  Reducing top-heavy bureaucracies is also a common goal of decentralization Determining the Optimum Level of Decentralization “If you don’t let managers make their own decisions, you’re never going to be more than a one-person business Decentralization helps companies to adapt more easily to changes in their environment Tall and Flat Organizations Flat Organizational Structure: an organization with relatively few layers of management  Usually decentralized firms Tall Organizational Structure: an organization with many layers of management  For example, the Canadian Forces o Information, whether upward or downward, must pass through so many organizational layers  Tall structures are prone to delays in information flow As organizations grow in size, it is both normal and necessary that they become at least somewhat taller  For instance, a small firm with only an owner-manager and a few employees is likely to have two layers – the owner-manager and the employees who report to that person  Too few layers can create chaos and inefficiency, while too many layers cancreate rigidity and bureaucracy Span of Control The distribution of authority in an organization also affects the number of people who work for any individual managers Span of Control: the number of people managed by one manager  In a flat organizational structure, the manager’s span of control, is usually wide  In tall organizations, span of control tends to relatively narrow 4 Span of control depends on many factors:  Employees abilities and the supervisors managerial skills to help determine whether span of control is wide or narrow  The similarity and simplicity of those tasks performed under the manager’s supervision
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